Financial literacy and more
Every loan agreement that has a floating rate of interest has a reset period which is the time when changes will occur to the interest rate on the loan.
The benchmark rate determining the floating rate might change at any point.
This does not mean that the change is applicable from the next day to the individual borrower.
For a particular borrower the rest period is when the changes will be reflected.
A reset period could be every quarter or even half yearly or annually.
A floating rate of interest changes with the change in interest rates in the economy.
This means that there is not going to be a fixed rate over the entire duration of the loan.
The interest rates could go either up or down depending on the economic conditions.
The floating rate would change at a specific interval that is decided in the loan agreement.
This rate of interest can lower or raise the amount to be repaid making planning tougher for an individual.
To understand the interest rate properly one has to ensure that the right figure is being compared.
The annual rate of interest is the most standard way to compare rates on different loans.
Lower rates attract the attention of borrowers as it makes the loan look cheaper.
Often the state interest rate is not annual but for a shorter duration.
The shorter duration rates need to be converted to an annual rate for ease of comparison.
The interest rate that is charged on the loan is based on the capital that is actually borrowed.
Sometimes a bigger or smaller borrowing could have different rates of interest charged on it,
The time for which the loan is being taken is also a factor that determines the interest rate
The purpose for which the loan is being taken impact the interest rate. If there is no security backing the loan than the interest rate would be higher.
The interest rate also depends on the financial history of the person taking the loan.